What is a Factoring Company?

What is Accounts Receivable?

Accounts receivable is an amount that is owed to a company by a customer who purchased goods or services on credit. Accounts receivable are considered an asset on the company’s balance sheet. Smart business owners are always looking for ways to improve their cash flow. Some have realized the effectiveness of working with invoice factoring companies. Factoring companies purchase the accounts receivable (AR) and provide business owners with necessary cash to pay for expenses such as payroll, inventory, office supplies, marketing, advertising and even taxes.

When a company decides to factor its invoices, it first looks for factoring companies that serve their industry. They review their existing invoices to determine which ones they can sell in order to cover the cash shortfall they have. This is one of the easiest and fastest ways to inject cash into a company.

How Much Are Your Accounts Receivable Costing You?

You know that carrying accounts receivable (AR) costs you money. After all, every one of the outstanding sales invoices on your aged AR report represents your money sitting in someone else’s bank account. But the cost of financing your accounts receivable is only one part of the total cost you are bearing. In addition, there are other hidden costs that you may not have considered. Indeed, when you factor in time, financing, and opportunity costs, carrying a significant AR balance can be highly costly to a business. Many businesses turn to invoice factoring to manage the cash flow shortage with overdue receivables.

RELATED: 8 Rules for Managing Your Accounts Receivable

Why do Companies Factor Receivables?

Factoring converts your accounts receivable into working capital without creating debt or adding liability. Factoring does not rely on your credit rating, collateral, or bringing in investors, so companies who have faced previous cash flow challenges may more easily qualify for funding. This type of financing helps companies free up capital that is stuck in unpaid debts. Universal Funding may fund up to 95% of your accounts receivable, getting monies owed to you working for you before they are paid, with rates starting as low as 0.55%.

Benefits to factoring, instead of traditional financing such as bank loans or investors, include:

  • You are not creating a debt—instead you are able to utilize the money you would have collected from customers before they make payment.
  • You can use the factoring service for whatever need you have—use the funds to cover payroll and other payments vital to your business or use it to put your growth plan into action.
  • You can use it as many times as you need—when a need arises you can utilize the service without having to reapply and it is flexible so it scales up with the growth of your business without lengthy paperwork.
  • Your credit rating is not a determining factor—you are not repaying funds, we are simply freeing up your operating capital through invoice factoring.
  • You no longer need to chase your customers for payment—the factoring company now works with your customers for payment of their invoices.

What is a Factoring Company?

factoring company is a business that purchases another company’s unpaid invoices, otherwise know as factoring of accounts receivables. Your business will usually receive payment for those invoices within 24 hours. The factoring company takes the responsibility of collecting payment of those invoices from your customers. While you could go to a bank for financing, when you do, you incur debt. It could also be a more time intensive process and affect your company’s credit as well as your personal credit.

RELATED: 10 Considerations When Selecting the Best Factoring Company for Your Business

What Does a Factoring Company Do?

A factoring company purchases a businesses outstanding invoices at a discount. The business gets a percentage of the invoice ranging from 80-95% within a few days, and the factoring company takes ownership of the invoice and the payment process. Once the invoice is paid in full, the remainder invoice balance is paid to the business minus the factoring fee. This allows the business to quickly improve their cash flow without having to go through the lenghty process of applying and waiting for approval for a bank loan. The invoice factoring process is fairly simple and quick and funding can occur within a matter of days.

How to Choose the Best Factoring Company

Invoice factoring is a great way to release the working capital tied up in your sales ledger giving your business the opportunity to secure the funding you need for expansion, purchase of additional raw materials, payroll, or simply cover day-to-day operating expenses.

But all invoice factoring companies are not the same. Indeed, some invoice factoring companies work on significantly different terms and conditions than their competitors. And, of course, some factoring companies have better reputations than others, too.

Selecting a factoring company for your business is a big decision. So, it is advisable to do your due diligence before choosing the factoring company that is best for your organization. The best factoring companies will work with you to find an arrangement that suits both parties.

How Well-Established is the Factoring Company?

There have been occasions when factoring companies have gone out of business, leaving their clients with an instant cash flow problem. So, it is advisable to do some background checks before signing up with a factoring company. For example, how long has the company been in business, and how is it funded? And, it is a good idea to ask for references from customers in your sector and research online reviews of the company.

How is the Factoring Account Administered?

You will likely be dealing with your chosen factoring company every day. New invoices will need to be submitted for financing, there might be queries raised on some of those invoices, and there will also be the late payers to be discussed. So, it is advisable to ask how these day-to-day tasks will be administered. For example, will you have a single account manager assigned to you? What is the process for submitting invoices? And does the company offer an online account management portal?

Can You Work with the People?

A crucial consideration when selecting a factoring company is the people. Because, unlike most other finance providers, you will need an excellent day-to-day working relationship with a factoring company. Indeed, getting the factoring deal that you want is only the beginning. You will then have to work daily with your factoring company. And, your customers will have contact with the factor’s team, too. So, it is essential that you feel confident that you can work in partnership with your chosen company.

Why Choose Universal Funding?

Universal Funding Corporation is the right partner for you because we are there when you need us, whether you only need us once or in an ongoing capacity. We understand the need for reliable cash flow and opportunities for growth generally come with tight timelines.  And unlike many other factoring companies, we can have funds in your hands in a matter of days.

Universal Funding is a private funding source that has funded thousands of businesses and more than $2 billion since 1998. We believe your business deserves a personal evaluation to determine the right financing approach. We take the time to learn about your business to get a clear understanding of the challenges you face and the growth opportunities that will take you to the next level.

Our expertise and tailored financial solutions offer many benefits:

  • Fast funding, typically within 24-48 hours
  • Get access to your cash tied up in unpaid invoices
  • Your credit is not the key determining element
  • Selling your accounts receivables will not influence your credit negatively
  • Eliminate the typical 30-90 day wait for payments
  • High advance rates and low factoring fees

RELATED: Is Invoice Factoring Right for Your Business?

Here’s what our clients have to say

Feedback from our clients makes us a better factoring receivables company. Here is a collection of comments provided by some of our clients who shared how Universal Funding helped to achieve their business goals. Feel free to scroll through the videos below to learn why you you’ll love being a referring agent for Universal Funding and why our clients love our services.

Turn unpaid invoices into cash

Don’t wait 30, 60 or 90 days for customers to pay. Get an advance on your outstanding invoices with invoice factoring.